Readers Forum: Share capital

A trading company client has issued share capital of £200 000.

This share capital was originally subscribed for in cash on a ‘£1 for £1’ basis and as the company has more working capital than it needs the plan is to return £150 000 to its shareholders by way of a capital reduction through which 150 000 £1 ordinary shares would be cancelled and £150 000 cash returned to them.

The company has distributable reserves in excess of £150 000 and we have been advised that the transactions in securities rules would operate to treat the £150 000 which is its proposed would be paid back to the shareholders in return for cancelling their shares as an income distribution rather than as a return of capital.

Surely this cannot be correct as the company is simply returning the £1 a share that the...